BULLARD: With the Central Bank’s credibility on trial, we need to front-load rate hikes.

Don’t fight the fed? St. Louis Fed President James Bullard says the Federal Reserve is in trouble. 

In a Monday Morning pre-market interview with CNBC, Bullard said the Fed is in a tight spot and needs to push interest rates up quickly to combat rapidly rising inflation. The market is now pricing in seven rate hikes this year, a stark contrast to three that were predicted previously. But it’s not just the quantity of rate hikes. When it comes to rate hikes, size matters. 

Fed credibility on the line

As Bullard said this morning, “Our credibility is on the line,” and a rate hike that’s too small may not be enough to reverse the economy’s crash course with inflation. What’s enough? While a standard rate hike might be a .25% raise, Bullard is advocating for at least four-times that — a one-hundred basis point hike by July. 

What does the market think?

Nothing is certain in this volatile landscape, but we can make some conclusions by tracking the movement on the S&P 500 Index Futures. At about 7AM EST, before Bullard’s interview, futures were down steadily, with S&P 500 futures trading at around 4,376 (lower by about a percentage point). 

Then, at 7:30AM EST, futures reversed course dramatically, briefly shifting into positive territory. This was based on comments from Russian Foreign Minister Sergey Lavrov, who commented that there may be a way to solve the Crimea-dilemma without resorting to physical conflict. 

Though that rise in futures was short-lived, as it was only 45 minutes later that the St. Louis Fed President would have his most Hawkish CNBC interview to date, driving futures back down, leading to a red open in the market. 

At the time of writing, the 10-Year Treasury Yield is trading above 2% (last week was the first time this had happened since August of 2019), and the Dow Jones is trading down by more than 300 points. Bottom line: If you’re an investor who believes the Fed is a friend of the markets, St. Louis Fed President James Bullard has bad news for you.